Oakland could lose tax bonanza in pot-farm battle

January 06, 2011

Michael Montgomery, California Watch

Cash-strapped Oakland could lose millions of dollars in projected tax revenues if the city bows to pressure to scale back controversial plans to license four commercial medical marijuana farms.

Supporters say the measure – approved by the city council last July – could provide Oakland with a tax bonanza of $10 million or more each year by centralizing marijuana cultivation into four, city-licensed “cannabis cultivation facilities.” 

Under the ordinance, the mega-farms would be registered and taxed as distinct businesses operating separately from medical marijuana dispensaries, which already earn the city more than a million dollars a year.

However, late last year the federal justice department and Alameda County district attorney warned Oakland that the plan could be in violation of state medical marijuana laws, making city officials liable to criminal prosecution.

“It remains an open question whether public officers or public employees who aid and abet or conspire to violate state or federal laws in furtherance of a city ordinance, are exempt from criminal liability,” Alameda County District Attorney Nancy O'Malley warned in a letter to Oakland mayor-elect Jean Quan.

Then, just before Christmas, the Oakland City Council abruptly suspended permit applications pending “amendments” to the marijuana cultivation ordinance.

Now, even if the council revives the ordinance, key supporters say it’s uncertain whether Oakland will find a way to squeeze tax money directly from pot growers – a big loss to city coffers.

Taxing licensed marijuana cultivation facilities is an “open question,” according to Oakland City Councilwoman Rebecca Kaplan, who co-authored the original ordinance.

“Whether entities can or will be taxed separately is something that the council asked staff to research and report back (on),” Kaplan said. “At this time, I have not taken a position on that question.”

No city or county in California currently imposes sales taxes directly on medical marijuana growers, according to Kris Hermes of Americans for Safe Access. Berkeley is also planning to license medical marijuana cultivation.  However, unlike Oakland, Berkeley intends to regulate growing and distribution in a single ordinance and impose size limits on permitted cultivation facilities.  Still, Berkeley officials say they have not finalized many elements of the plan, including tax rules for "cannabis businesses" operating in the city.

State and federal law enforcement agencies and Oakland City Attorney John Russo have warned that taxing pot farms as "distinct business entities" could violate state guidelines, which require medical marijuana to be cultivated within a non-profit collective of patients and care providers.

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